Equilibrium market price facts for kids

An equilibrium market price is like a perfect balance point for the cost of something. It's the price where there's no reason for the price to go up or down.

Imagine a popular new video game. If the price is just right, lots of people will want to buy it, and the store will have enough copies for everyone.

What is an Equilibrium Price?

The equilibrium price is the sweet spot where the amount of something people want to buy (called quantity demanded) is exactly the same as the amount sellers have available (called quantity supplied). At this price, everyone is happy, and the market is stable.

What Happens When Price is Too Low?

Let's say the new video game is priced very cheaply. Suddenly, everyone wants it! The quantity demanded will be much higher than the quantity supplied. This means the store will quickly run out of games. When this happens, there's a strong reason for the price to go up. Sellers might realize they can charge more because so many people want the game.

What Happens When Price is Too High?

Now, imagine the video game is super expensive. Not many people will want to buy it at that high price. The quantity supplied (the number of games the store has) will be much higher than the quantity demanded. The store will have lots of unsold games sitting on the shelves. To get rid of them, the store will likely lower the price. This creates a reason for the price to go down.

Finding the Balance: Market Clearing Price

The market naturally tries to find the equilibrium price. If the price is too low, it goes up. If it's too high, it goes down. This continues until the quantity demanded equals the quantity supplied. When this balance is reached, the price is stable. This special price is sometimes called the market clearing price because it "clears" the market, meaning all the goods supplied are bought by consumers.